(Adds quote from central bank chief, context)
PARACAS, Peru, Dec 2 (Reuters) - Drought hitting Peruvian farming regions might fan inflation if rains do not come in January, the president of the Andean country’s central bank said on Friday.
But Julio Velarde said adjusting the benchmark interest rate in response would not keep a lid on any food price increases as they would be driven by temporary supply factors and not demand.
“We’ll know in January, rains in the highlands are in January,” Velarde told journalists on the sidelines of a business summit in the coastal town of Paracas. “The risk would be if there’s no rain between January and March. It would be a problem.”
The bank has held rates unchanged at 4.25 percent for nine months as inflation has cooled from a four-year peak in February and economic growth has picked up on surging copper production.
The annual inflation rate eased to 3.35 percent in November, still above the central bank’s 1-to-3 percent tolerance range.
Velarde said he expects inflation to be “very close” to 3 percent by year-end.
The government has declared emergencies in valleys in Peru’s southern and northern Andes due to drought threatening rice and potato crops, important food staples. (Reporting by Marco Aquino; Writing by Mitra Taj; Editing by James Dalgleish)